III. Chico District Issues
As part of its Chico District test year 2002 GRC, CWS proposed to charge its ratepayers at least $1.4 million to build a new combined operations and customer center, declare its old operations and customer centers no longer necessary or useful in the performance of its public utility duties, and to give its shareholders all of the proceeds from the sale of the old centers.
A.04-08-017 provides additional information on the need of CWS to replace its old Chico operations center and customer center with a new combined Chico operations and customer center. CWS seeks a Commission finding that the old Chico District operations and customer centers were no longer necessary or useful within the meaning of Sections 790 and 851. CWS also seeks authority to include in rate base the remaining $1,182,462 of the total $3,109,694 Chico combined operations and customer center costs not yet included in rate base, increase its Chico District rates by $171,300 so that it may have an opportunity to earn a return on that additional rate base, and treat the entire $519,751 net sale proceeds from the two real properties, comprising the old Chico operations center and customer center, in accordance with Section 790.
A. The Old Operations Center
The 50-year old operations center, located on a 1.2 acre parcel of land at 215 Orange Street, Chico, was acquired by CWS in 1940 for $3,319. On this property was a 2,688 square foot manufactured steel building containing a meeting room, shop room, and storage room. Also on this property was a radio building, fuel storage tanks, carports for 14 vehicles, open parking spaces for 25 vehicles, sand and gravel storage bins, an outdoor storage area, a pump house, a well, and an elevated water tank.
A consultant hired by CWS in 2000 discovered that excessive mold and moisture levels existed in the old building due to water intrusion throughout the building. Tests showed concentrations of aspergillius and penicillium which cause allergic responses such as asthma, headaches, nose bleeds, dermatitis, conjunctivitis, and rhinitis. Unsuccessful attempts to repair the leaks continually exposed employees and customers to harmful mold levels.
Since 1986, the Chico District has grown by 62% or nearly 10,000 customers, and is expected to grow further at an annual 2.5% rate. The old building provided an average of 128 square feet of space for each of its 22 employees working in the building, a smaller square footage allowance than most of its other districts.4 The storage room was also too small to accommodate materials and supplies, and the meeting room had insufficient space to accommodate all employees, requiring employees meetings to be held at alternative locations.
B. The Old Customer Center
The old customer center was acquired by CWS in 1926 and was located at 1540 Esplanade, a few miles away from the old operations. This property consists of three lots, on which are a 1,925 square foot customer center wood frame office building, parking facilities, a well, and a water storage tank. The old customer center provided an average of 241 square feet of work space for each of its eight employees working in the customer center, a lesser space than in most of CWS's other districts.5 There was also a shortage of customer parking stalls that required employees to park offsite, no conference room for employee meetings, no room for additional file cabinets or storage, and outdated wiring.
C. New Combined Customer Center
The new Chico District customer center combines the old operations center, customer center, and warehouse operations in one building. It is located on a three acre developed site at 2222 Whitman Avenue, Chico. The total cost of this complex was $3,109,694, as detailed in Exhibits B and C.
The combined customer center has approximately 7,240 square feet compared to 1,925 square feet at the old customer center. This new customer center has a reception area with three work stations for customer service representatives and cubicles for other customer service representatives, meter readers, collectors, service persons, and other office personnel such as the water quality manager and electrical mechanical technician. Offices are also included for the district manager, customer service manager, general superintendent, and an insurance program supervisor. This customer center also has a storage area, break room, conference room, and parking for customers and employees.
The combined operations center has approximately 5,105 square feet compared to 2,688 square feet at the old operations center. This new operations center has a meeting room large enough to hold all district employees, offices for the general foreman and two superintendents, and work stations for the storekeeper, operations clerk, locator and two foremen. The new operations center also has a pump operator's room that houses hardware for a "SCADA" system, pump charts, water samples, and work station for the operators.
The new warehouse is approximately 5,655 square feet and offers indoor storage space for the storage of new panel boards, generators, and other large items awaiting installation at pump stations that previously had to be stored outside. The new warehouse also provides space for deliveries, pump operations, fabrication, and protection from rain and heat.
The consolidation of its operations center, customer center, and warehouse at one location has enabled CWS to increase efficiencies and to better serve its customers. The new combined office complex is located in a commercial area with convenient access and brings together at one location customer representatives, meter readers, pump operators, collectors, service personnel, and warehouse operations previously spread throughout the entire district.
D. Necessary and Useful
Although the Office of Ratepayer Advocates (ORA) recommended that the old operations and customer centers either be repaired or rebuilt on the same locations, CWS concluded that neither option was cost effective nor feasible because of the need to comply with stringent land use, local building, local zoning, and Americans With Disabilities Act requirements. Hence, CWS proceeded with the construction of a combined operations and customer center and warehouse.
CWS then assessed the necessity and usefulness of the old operations and customer centers upon being vacated in 2002. Based on that assessment, it subdivided the old operations center in October 2002 to retain the necessary and useful portion, which contained a well, pump house and water storage tank. CWS also subdivided the old customer center in 2002 to retain a portion of one lot with a well and water tank.
The remaining parts of the old subdivided properties were no longer necessary or useful. With no plan or need for their use, CWS sold the old operations and customer properties to CWS Utility Services for appraised values of $150,000 and $325,000, respectively, which, in turn, was sold for approximately $550,000.
We find that CWS's process to assess its old operations and customer centers was reasonable and appropriate. The sale of these centers, no longer necessary or useful for public utility purposes, does not require Section 851 approval because Section 851 is applicable to only "property necessary or useful in the performance of [the utility's] duties to the public."
As requested by CWS, the net sale proceeds of the centers should be accounted for as described in the following section of this order. CWS has complied with D.03-09-021.
The remaining $1,182,462 of the new Chico customer center costs not yet in rate base should be included in rate base so that CWS may have an opportunity to earn a fair return on that investment. In this regard, CWS must file an advice letter with the Water Division Director for authority to increase its Chico District rates by $171,300 as set forth in Exhibit H. Treatment of the $519,751 net sale proceeds from the two real properties comprising the old Chico centers should be deferred pending resolution of R.04-09-003, where we will address water utility gain on sale issues in accordance with Section 790.
4 For example, the operations center in the Mid-Peninsula District had 195 square feet per employee, the Los Altos District 190 square feet, and the Bakersfield District 180 square feet.
5 For example, the customer center in the Los Altos-Suburban District had 440 square feet per customer center employee and the Bakersfield District 500 square feet.
